|
|
|
|
|
|
24.11.11
|
Cash Withdrawal Limits
|
|
|
By Tai Adelaja
|
In a key sign that Russia may soon be faced with a shortage of cash, the country’s Ministry of Finance is pushing for a regulation that could deny Russians the right to withdraw their bank savings as and when they desire. The legislative initiative, which was published on the Finance Ministry’s Web site on Wednesday, came after major domestic banks reported an unprecedented fall-off in bank deposits last month. Analysts said the measure will substantially reduce the vulnerability of domestic banks to panic bank runs in the event of another banking crisis.
Under an amendment that the ministry plans to introduce to the “Federal Law on Banks and Banking Activity,” bank deposit contracts will henceforth include conditions that disallow depositors from withdrawing all or part of their fixed bank deposits. Under current Russian law the banks are obliged to allow depositors to withdraw their savings unhindered, regardless of the conditions of their contracts. In notes accompanying the draft bill, the Finance Ministry said that while demand-deposit contracts let banks provide liquidity, they had exposed them to panic-based bank runs.
Banking analysts said that the idea to restrict deposit withdrawals was first floated after the 1998 financial crisis. Its main goal, they said, has been to reduce runs on the banks in times of crisis. Runs by depositors struggling to salvage their savings during the 1998 financial crisis turned what began as a banking crisis into a full-blown sovereign crisis. "As a result [of bank runs] banks are unable to plan placement of funds attracted from depositors, as there is always the possibility that clients will terminate their contracts before the expiry of the deposit term," the Finance Ministry said in statements posted on its Web site.
However, the present move also came hard on the heels of a report by the Central Bank this month that the country’s top ten banks experienced an outflow of deposits in October. For the first time this year, banks' ruble deposits dipped 0.4 percent in October as Russians moved almost 16.5 billion rubles ($525 million) from most of the country’s top ten banks to a more secure haven, figures published by the Central Bank show. This contrasts with September, when household deposits grew by 1.9 percent as well as with a one-percent growth in deposits recorded in August, Kommersant daily reported.
Bank regulations generally penalize early deposit withdrawal since it compels them to get funds that they had invested for a longer term back from the market at an extra cost. But domestic banking regulators always try to lower the plank for Russians, who generally distrust financial institutions, to encourage them to deposit their money with commercial banks. "The huge deposits withdrawal by depositors before completion of the period of the deposit agreed upon at the time of placing leads to banks defaulting on their obligations to other creditors,” the Finance Ministry said in notes accompanying the amendments. The “domino effect” created by such a move, the ministry said, “could easily lead to the insolvency of a financial institution whose credit worthiness was otherwise quite satisfactory."
Meanwhile, the country's largest lender Sberbank may have benefitted from last month’s deposit withdrawals, as its deposits also swelled by 0.4 percent over the same period, according to Central Bank’s figures. Despite its lower-than-average interest rates, the state-owned bank enjoys a competitive advantage as a bank that is not only reliable and accessible, but also has the protective arm of the state solidly behind it.
The latest draft bill also introduces a new financial instrument – the irrevocable Certificate of Deposit, or CD – which Russian banks can use as a short or long term investment, RIA Novosti reported on Wednesday. Former Finance Minister Alexei Kudrin announced plans to introduce the Certificate of Deposit last summer, saying that a bill to initiate it had been drafted but has been mothballed due to the global financial crisis. The certificates will allow banks to hold on to depositors' money for a specified period of time with the promise to repay the principal and interest to the depositor at the conclusion of the investment term. Deputy Finance Minister Alexei Savatyugin said earlier that the CD bill will be adopted when the newly-elected State Duma convenes in January.
Alfa Bank Chief Economist Natalya Orlova said the new measures are unlikely to affect most Russian depositors, who will continue to enjoy their civil rights to withdraw their bank savings whenever they like. "What the Ministry of Finance is aiming to achieve is encourage commercial banks to create special deposit accounts that will curb depositors' enthusiasm for early withdrawal," Orlova said. "I don't think anyone could legally stop people from taking out their savings as recent events in several European countries have shown." |
| The source |
|
|
|
|
|
|
The virtual community for English-speaking expats and Russians
